(Bloomberg) -- China’s benchmark stock index erased all its gains for the year as a weaker yuan and developers’ debt woes added to persistent worries over growth and geopolitics.

The CSI 300 Index closed down 1.4% Wednesday, with the energy and financial sectors leading the decline. The benchmark is among the worst performers in Asia this year, compared to a more than 3% advance in the MSCI Asia Pacific Index and double-digit gains in key gauges for Japan, South Korea and Taiwan.

Chinese stocks have steadily fallen out of favor since a reopening rally fizzled at the end of January, belying bullish conviction calls from Wall Street analysts at the start of 2023. Weaker-than-expected economic data have prompted banks from JPMorgan Chase & Co. to Barclays Plc to slash their growth forecasts, while worries over worsening ties with Western countries have also hurt sentiment.

READ: Yuan Weakness Risks Dealing Another Blow to China: Taking Stock

Developers’ financial woes were again in focus on Wednesday, with a number of local government financing vehicles struggling to repay debt on time. A Bloomberg gauge of Chinese builders shed more than 2%, falling for the 11th session in its longest such streak since 2018.

“It looks like it’s going to be a grueling year,” said Dai Yuzhong, a fund manager at Shanghai Shinyu Private Fund Management Co. “The pessimism in the market is spreading, and negatives ranging from the yuan losing the 7 level to worries about LGFV payment are putting investors on the defense.”

Outflows from foreign investors continued. They offloaded 4.5 billion yuan ($635 million) after a $1.1 billion selloff via trading links with Hong Kong on Tuesday. 

Read: China LGFV’s Last-Minute Bond Payment Highlights Local Struggles

Tensions between China and the US have heated up as Beijing banned purchases of Micron Technology Inc.’s products on national security grounds, which ignited accusations of over-reach from US officials.  

Traders are also watching how China’s new Covid wave, which is forecast to peak at about 65 million infections a week toward the end of June, may affect the recovery. 

Read: US Must Widen China Chip Curbs in Micron Riposte, Lawmaker Says 

Investors this year have turned to more themed trades as the macro environment deteriorated. State-owned enterprises have witnessed eye-popping gains after regulators called for building a valuation system with Chinese characteristics, a term some interpreted as a signal to boost valuations. Artificial intelligence-related companies also saw frenzied trading earlier this year before enthusiasm cooled.

The Hang Seng China Enterprises Index of Chinese firms listed in Hong Kong slid 1.9% on Wednesday, while a gauge of technology stocks lost 2% to close at its lowest since late November.

--With assistance from April Ma.

©2023 Bloomberg L.P.